Financial Watch | October 2020

How COVID-19 is Impacting Confidence Levels Among Retirement Savers

Throughout 2020, the COVID-19 pandemic has impacted the lives and health of people around the globe while wreaking havoc on commerce, the financial markets, and the world’s economies. A recent study, focused on how the pandemic is impacting retirement confidence levels among men and women, found that women may be disproportionately impacted when it comes to retirement security. Key findings reveal that:¹

• 24% of women say their confidence in their ability to retire comfortably has declined in light of the coronavirus pandemic, compared with 20% of men.
• Only 17% of women are “very confident” that they will be able to fully retire with a comfortable lifestyle, which is significantly lower than the 30% of men who are “very confident.”
• 52% of women and 58% of men have experienced impacts to their own employment situation as a result of the coronavirus pandemic.

For decades, lower pay, more time out of the workforce for parenting or caregiving, and longer average lifespans than their male counterparts have put women at greater risk for outliving their assets in retirement. Amid the pandemic, these challenges have intensified with layoffs, furloughs, or extended periods of time working from home, juggling childcare, schooling, and other responsibilities. These are among many reasons why it’s important for you—or the women in your life—to take steps now to help reverse the effects that gender inequality has on women, society and the economy.

Women's issues are economic issues

This year marks the 100th anniversary of the passage of the 19th Amendment, guaranteeing and protecting women's constitutional right to vote. Yet, women, as a group, still struggle when it comes to economic equality. According to a McKinsey Global Institute study, women make up 39% of global employment but account for 54% of overall job losses during the pandemic. The study indicates that if no action is taken to counter these effects, global GDP growth could be $1 trillion lower in 2030 than it would be if women’s unemployment simply tracked that of men in each sector. Conversely, taking steps now to advance gender equality could add $13 trillion to global GDP by 2030.²

Research compiled by UN Women, the United Nations entity dedicated to gender equality and the empowerment of women, mirrors these results, indicating that women’s economic empowerment not only boosts productivity, but increases economic diversification and income equality. Research shows that companies greatly benefit from increasing employment and leadership opportunities for women, which increases organizational effectiveness and growth. In fact, companies with three or more women in senior management functions scored higher in all dimensions of organizational performance.³

Caregiving poses a significant financial strain

A survey released jointly in May 2020 by the National Alliance for Caregiving and AARP presents a stark portrait of family caregivers.⁴ Three in five caregivers are women and spend an average of 24 hours per week providing unpaid care to aging or disabled adults. According to those surveyed:

• 45% have experienced at least one financial impact as a result of their caregiving
• 28% have stopped saving
• 23% have taken on more debt
• 22% report they used up personal short-term savings
• 12% tapped into long-term savings that were intended for retirement or education

Women who leave the workforce during what should be their peak earnings years—typically in their late 50s and 60s—due to a job loss or to care for aging family members may be at increased risk. Not only does this impact their ability to aggressively save for retirement but may force many women to begin taking Social Security benefits earlier than planned. That results in a significantly smaller monthly benefit for life, than if they were able to wait until later to begin taking benefits.

Reversing the trend—4 tips for a more confident retirement

Fortunately, there are strategies to help overcome obstacles along the path to a confident retirement.

1. Start saving as early as possible to take advantage of long-term compounding, which can have an exponential effect on growth. Not only are you earning interest on your initial investment, but you’re earning interest on reinvested earnings. 
2. Take advantage of employer retirement plans. Employer retirement plans are a tax-smart way to invest for retirement. Plans, such as a 401(k) or 403(b), make it easy to save through payroll deductions. Many plans enable both pre-tax and after-tax (Roth) contributions, and all earnings grow on a tax-deferred basis, which can contribute to exponential growth over time.
3. Don’t underestimate how much you will need. According to the Social Security Administration, monthly retirement benefits only replace about 40% of the average earner’s pre-retirement income.⁵ That makes other sources, such as a pension and employer retirement plan savings, critical for meeting all your lifestyle needs in retirement.
4. Work with an independent financial advisor or professional to help take the complexity out of planning for your future and help you remain on track toward your goals. The right financial professional is someone you can trust to understand the challenges and opportunities you and your family face and develop a strategy that’s aligned with your goals.

These are challenging and uncertain times, but help is just a quick call away. If you want to review your financial strategy or discuss additional options, please call the office for an appointment.

^{1 https://transamericacenter.org/docs/default-source/retirement-survey-of-workers/tcrs2020_sr_women-and-retirement-amid-covid19.pdf
2 https://www.mckinsey.com/featured-insights/future-of-work/covid-19-and-gender-equality-countering-the-regressive-effects#
3 https://www.unwomen.org/en/what-we-do/economic-empowerment/facts-and-figures
4 https://www.ncpssm.org/eleanors-hope/issue-briefs/women-and-retirement-the-gender-gap-persists/
5 https://www.ssa.gov/pubs/EN-05-10024.pdf}

^{Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.}